Yahoo to Get 110 Percent of Search Revenue in First Two Years of Deal With Microsoft

[CORRECTION: My sources, unusually reliable, were off on the 110 percent figure; as announced by Yahoo and Microsoft, "Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88 percent of search revenue generated on Yahoo!'s O&O sites during the first five years of the agreement."]

Oh, the details keep rolling in about the terms of the Yahoo-Microsoft online advertising and search deal, which is expected to be announced sometime tomorrow.

According to several sources close to the situation, as part of the pending deal–in which Yahoo (YHOO) would sell search advertising for its sites and some of Microsoft’s, while Microsoft’s Bing search technology would power it–Yahoo would get to keep pretty much all the revenue and even more for the next three years.

This might be the “boatloads of money” that Yahoo CEO Carol Bartz said–in an interview with me at the seventh D: All Things Digital conference in May–the company needed to strike the partnership with Microsoft (MSFT).

Sources said that in the first two years of the deal, Yahoo would keep 110 percent of all revenue. And, in the third, Yahoo would get 90 percent.

That could represent many billions of dollars, since Yahoo will be selling for both.

For Microsoft, the payment will–within four years–allow the software giant to become the de facto No. 2 search technology player after Google (GOOG).

It is not clear if there have been any guarantees on revenue made by Microsoft, but there is no upfront payment being paid to the Silicon Valley-based Yahoo.

As previously reported, the pair have reached an agreement that would link the Internet giants into close partnership.

More to come as it develops, of course–as I wing my way to the Pacific Northwest for Microsoft’s annual meeting for analysts on Thursday in order to annoy as many top execs as possible.

And, in case you are interested, here is a highlights video of the interview that I did with Bartz at D7, in which she talks about Microsoft and more:

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